Today’s Big Picture
Equities in Asia started this week off in positive territory with Japan’s Nikkei climbing 2.1% and China’s Shanghai Composite Index rising 1.1%. Markets in India were closed for Diwali and trading in Australian equities was suspended after 30 minutes due to technical issues. The catalyst for the day’s positive moves was Sunday’s signing of an Asian trade deal, dubbed the Regional Comprehensive Economic Partnership, that encompasses nearly a third of the globe’s population and gross domestic product. Also spurring equities higher was the favorable China economic data released over the weekend that showed the country’s economic recovery strengthened in October.
By mid-day trading, equities in Europe were also higher across the board, shrugging of weekend news that Germany will likely face “considerable restrictions” to combat the spread of Covid-19 for at least the next four to five months. More than offsetting that revelation is this morning's news from Moderna (MRNA) that its COVID-19 vaccine was more than 94% effective. Moderna also announced new data showing its COVID-19 vaccine candidate remains stable at 2° to 8°C (36° to 46°F), the temperature of a standard home or medical refrigerator, for 30 days. Much like the positive vaccine reports from Pfizer (PFE) and BioNTech (BNTX) last week, we strongly suspect this latest vaccine news from Moderna will continue the sector rotation that began last week that pressured work from home stocks such as Zoom Video Communications (ZM).
While we are hopeful, we continue to recognize the rising COVID-19 case counts in the U.S. and Europe will be a headwind to the global economy and corporate earnings in the next few quarters. And while many are focused on the virus and vaccines, we’d note this week Brexit talks are set to continue as the UK and EU approach the latest deadline, and tomorrow the OPEC+ Joint Ministerial Monitoring Committee meets. We have a big week for U.S. economic data that will likely influence current quarter GDP expectations as well as a slew of retail corporate earnings reports that will help set expectations for the 2020 holiday shopping season.
Data Download
International Economy
Preliminary data revealed the Japanese economy rose 5% QoQ in Q3 2020 following its record slump of 8.2% in Q2 and above the consensus for a 4.4% increase.
Industrial production in Japan rose 3.9% MoM in September 2020, little-changed from a preliminary estimate of 4% but vs. 1% growth in August. On an annual basis, industrial production fell by 9% in September, after the 13.8% drop recorded in August.
Average new home prices in China's 70 major cities increased by 4.3% YoY in October, following a 4.6% in September.
China's industrial production increased by 6.9% YoY in October, unchanged from September’s nine-month high and above market expectations for a 6.5% increase, as activity continued to recover from coronavirus.
Led by increases in almost every category, China's retail trade rose by 4.3% YoY in October 2020, the biggest increase since December 2019 but below market expectations of a 4.9% increase. From January to October, retail trade tumbled 5.9% YoY,
Consumer prices in Italy decreased 0.3% YoY in October of 2020, following a 0.6% fall in the previous month, marking the sixth consecutive month of falls in consumer prices but the softest since June.
Domestic Economy
We’re starting a heavy U.S. economic data week off with only the November New York Empire Manufacturing Index being reported today. Later this week we’ll get the October data for Retail Sales, Industrial Production & Capacity Utilization as well as Housing Starts & Building Permits. Given those metrics, we’re likely to see some movement when it comes to GDP expectations for the current. Exiting last week, the New York Federal Reserve’s Nowcasting Report called for GDP of 2.86% in the current quarter, down from 4.77% entering October.
Markets
Following last week’s COVID-19 vaccine rally that led to a sector rotation in equities, the S&P 500 finished last week up 2.2%, while the small-cap focused Russell 2000 jumped 6.1% while the Dow Jones Industrial Average rose 4.1%. The Nasdaq Composite, however, declined 0.6% amid relative weakness in the mega-cap/growth/stay-at-home stocks.
Stocks to Watch
Palo Alto Networks (PANW) reported better than expected top and bottom-line results for its October quarter and issued upside guidance for the coming year. The company sees fiscal 2021 EPS of $5.70-5.80 vs. the $5.62 consensus and fiscal 2021 revenue of $4.09-4.14 billion vs. the $4.0 billion consensus.
Casper Sleep (CSPR) reported a September quarter loss of $0.40, worse than the expected -$0.35, and revenue for the quarter of $123.5 million fell short of the expected $145.9 million consensus. Casper issued downside guidance for the current quarter with revenue of $132-142 million vs. the $142.9 million consensus, which included YoY growth in its e-commerce channel.
The PNC Financial Services Group (PNC) and the Spanish financial group, Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) announced that they have signed a definitive agreement for PNC to acquire BBVA USA Bancshares, Inc., including its U.S. banking subsidiary, BBVA USA, for a purchase price of $11.6 billion to be funded with cash on hand in a fixed price structure. The acquisition adds approximately $86 billion of deposits and $66 billion of loans based on BBVA USA's Sept. 30, 2020 balance sheet.
Capital One (COF) reported October card metrics that included a Domestic net charge-off rate of 3.11% vs 3.35% last month with a delinquency rate of 2.19% vs 2.21% last month (-2 bps change). JPMorgan Chase (JPM) also reported its October card metrics with U.S. net credit losses of 1.89% vs 1.92% last month and 30+ day delinquencies of 1% vs 0.98% last month.
Simon Property Group (SPG) and Taubman Centers (TCO) reached a definitive agreement modifying certain terms of the original merger agreement, including a modified purchase price of $43.00 per share in cash and other provisions to reduce closing conditionality. The modified merger agreement continues to provide that Simon will acquire an 80% ownership interest in The Taubman Realty Group Limited Partnership. The Taubman family will sell approximately one-third of its ownership interest at the transaction price and remain a 20% partner in TRG.
Foundation Building Materials (FBM) announced that it has entered into a definitive agreement under which an affiliate of American Securities LLC, a leading private equity firm, will acquire all outstanding shares of FBM for $19.25 per share in an all-cash transaction valued at approximately $1.37 billion, including outstanding debt.
Walmart (WMT) is selling its majority stake (65%) in Japanese supermarket chain Seiyu to investment firm KKR (KKR) and (20%) to e-commerce company Rakuten (RKUNF) for a total of $1 billion. This is the latest divestiture of underperforming assets by Walmart, following its exits in Britain, Argentina, and Brazil.
After today’s market close Baidu (BIDU), MSG Entertainment (MSGE) , and SmileDirectClub (SDC) will report their quarterly results. Investors looking to get a jump on such reports in the coming days should visit Nasdaq’s earnings calendar page.
On the Horizon
- November 17: October Retail Sales, Import/Export Prices, Industrial Production, Business Inventories, Capacity Utilization, Homebuilder Sentiment, TIC Flows, Facebook (FB) CEO Mark Zuckerberg and Twitter CEO Jack Dorsey appear before the Senate Judiciary Committee
- November 18: US October Housing Starts, Building Permits, MBA Mortgage Apps
- November 19: Weekly jobless report, Philly Fed Outlook, Bloomberg Comfort, Leading Index, Existing Home Sales, Kansas City Fed Activity
- November 20: Options Expiration
- November 23: Chicago Fed National Activity, Preliminary Markit PMIs
- November 24: FHFA Home Prices, Case-Shiller Home Prices, Consumer Confidence, Richmond Fed Manufacturing
- November 25: Personal Income/Spending, PCE, Retail Inventories, GDP, Durable Goods, University of Michigan Sentiment, New Home Sales
- November 26: Markets Closed for Thanksgiving
Thought for the Day
“Whenever you feel sad, just remember that somewhere in this world there’s an idiot pulling a door that says PUSH.” ~ Anonymous
Disclosures
- Palo Alto Networks (PANW) is a constituent in the Foxberry Tematica Research Cybersecurity & Data Privacy Index.
- Walmart (WMT) is a constituent in Tematica Research's Thematic Dividend All-Stars Index.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Chris Versace
Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.
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Lenore Elle Hawkins
Lenore Elle Hawkins has, for over a decade, served as a founding partner of Calit Advisors, a boutique advisory firm specializing in mergers and acquisitions, private capital raise, and corporate finance with offices in Italy, Ireland, and California. She has previously served as the Chief Macro Strategist for Tematica Research, which primarily develops indices for Exchange Traded Products, co-authored the book Cocktail Investing, and is a regular guest on a variety of national and international investing-oriented television programs. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.
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Mark Abssy
Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.
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